On Dec. 1st, the Centers for Medicare and Medicaid Services released a new proposed rule for Accountable Care Organizations (ACOs) participating in the Medicare Shared Savings Program (MSSP). The voluminous proposal covers a broad range of issues: some technical; some substantive. This advisory provides an overview of the proposed rule. Over the next two weeks, we will publish a series of advisories addressing specific aspects of the proposed rule in more detail, including advisories focused on proposed changes to the existing ACO models and the creation of a new “Track 3” model; modifications to ACO governance and contracting requirements and changes in beneficiary attribution.

Since the inception of MSSP, participants have become increasingly critical of the operational challenges and financial risks inherent in the existing ACO framework. The proposed rule addresses several of the key concerns, but the manner in which CMS proposes to address those concerns has met with mixed reviews. It is not clear whether the changes in the proposed rule, if finalized, will be sufficient to attract and retain a critical mass of MSSP participants.

Extension of One-Sided Risk Model

The headline from the proposed rule is the expansion of the one-sided risk model (Track 1). Under the existing MSSP regulations only during the first three years of participation may an ACO enjoy upside but not downside risk for the total cost of care provided to attributed or aligned Medicare beneficiaries. After three years, an ACO must either move into a two-sided risk model (Track 2) or leave the program. Under the proposed rule, ACOs may continue for another three-year cycle in Track 1 (the one-sided risk track) in which they share savings but do not have liability for losses.

However, if an ACO elects to stay in Track 1 for an additional three-year stint it will be subject to a reduced shared savings formula. During the initial three years, Track 1 ACOs are eligible to receive up to 50 percent of the cost savings. During the second three years under Track 1, the ACO will be entitled to only 40 percent of the savings during year one, 30 percent for year two and 20 percent in year three.

  While industry welcomed CMS’s willingness to permit ACOs currently participating in MSSP to continue to participate for an additional three years under Track 1, critics point out that only 25 percent of ACOs in Track 1 have achieved shared savings, and they predict that in the future over 90 percent of the ACOs that achieve savings are likely to have the savings reduced substantially because of increasingly challenging quality requirements. Some analysts predict that the reduction in the shared savings allocations will make ACOs reluctant to continue with Track 1, let alone convert to Track 2.

New “Track 3”

Another noteworthy aspect of the proposed rule is the introduction of Track 3 model, which borrows from the Pioneer ACO Program, allowing beneficiaries to be prospectively aligned or assigned to the ACO. Track 3 also gives participating ACOs the opportunity to earn up to 75 percent of shared savings but increases their downside risk to 15 percent of any excess spending. (Currently ACOs cannot be held responsible for more than 10 percent). It is too soon to tell if Track 3 will attract significant interest among MSSP participants.

Proposals Relating to Shared Savings Calculations

Many in the industry have been critical of CMS’ methodology for determining baseline costs and calculating savings or excess spending. In the proposed rule, CMS solicits comments on alternative methodologies for calculating whether an ACO has generated savings for the Medicare Program.  Currently, Medicare uses historical costs to estimate what the Program would have paid to provide care for attributed patients and uses that as a benchmark. Providers who already are practicing efficiently have a harder time producing savings than less efficient providers. CMS seeks comments on whether it should abandon using historical costs as the baseline and instead compare ACO spending to the average spent by other doctors and hospitals in the region that are not part of an ACO.

ACO Governance and Contracting

The proposed rule clarifies the ACO governance requirements, specifying the level of independence required of an ACO’s governing body, and plainly stating that governing body members owe the ACO a fiduciary duty of loyalty. The proposed rule also details the contracting requirements for ACO participants and ACO providers/suppliers, noting some of the historical challenges that ACOs and CMS have faced in identifying and tracking which providers were affiliated with an ACO and ensuring that those providers were aware of their obligations under MSSP.

Comment Period

The public has until Feb. 6, 2015 to comment on the proposed rule.